Financial literacy, retirement planning, and household wealth

There is ample empirical evidence documenting widespread financial illiteracy and limited pension knowledge. At the same time, the distribution of wealth is widely dispersed and many workers arrive on the verge of retire
There is ample empirical evidence documenting widespread financial illiteracy and limited pension knowledge. At the same time, the distribution of wealth is widely dispersed and many workers arrive on the verge of retirement with few or no personal assets. In this paper, we investigate the relationship between financial literacy and household net worth, relying on comprehensive measures of financial knowledge designed for a special module of the DNB (De Nederlandsche Bank) Household Survey. Our findings provide evidence of a strong positive association between financial literacy and net worth, even after controlling for many determinants of wealth. Moreover, we discuss two channels through which financial literacy might facilitate wealth accumulation. First, financial knowledge increases the likelihood of investing in the stock market, allowing individuals to benefit from the equity premium. Second, financial literacy is positively related to retirement planning, and the development of a savings plan has been shown to boost wealth. Overall, financial literacy, both directly and indirectly, is found to have a strong link to household wealth. JEL Classification: D91, D12, J26 Keywords: Financial Education, Savings and Wealth Accumulation, Retirement Preparation, Knowledge of Finance and Economics, Overconfidence, Stock Market Participation
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Metadaten
Author:Maarten van Rooij, Annamaria Lusardi, Rob Alessie
URN:urn:nbn:de:hebis:30-115373
Series (Serial Number):CFS working paper series (2011, 21)
Document Type:Working Paper
Language:English
Date of Publication (online):2011/09/14
Year of first Publication:2011
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2011/09/14
Tag:financial education ; knowledge of finance and economics ; overconfidence; retirement preparation ; savings and wealth accumulation
HeBIS PPN:27708038X
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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